Govt wins $1-bn cost dispute with RIL, BG

The government has won a major portion of the $1 billion arbitration with Reliance Industries and British firm BG Group over recovery of cost in western offshore Panna/Mukta and Tapti oil and gas fields.

A three-member London-based arbitration panel ruled in favour of the government in some of the 69 clauses of dispute that were listed by RIL-BG combine. A few of the clauses under an arbitration initiated by the private firms in December 2010 went in favour of RIL-BG, an official said.

The big-ticket issue of inclusion of certain items in the cost recovery went in favour of the government with the arbitration panel holding that RIL-BG cannot include such items.

Operators are allowed to deduct all costs incurred on field operations from oil and gas produced before sharing profit with the government. Disallowing of certain items in the cost would result in higher profit petroleum for the government, he said.

However, this is only an interim award and final arbitration award would follow procedural hearings due from December 18.

RIL-BG also have an option to go back to the panel within a month for inclusion of certain costs.

The official said the government also won its case for RIL-BG applying exact tax rates and not notional rates for computing statutory dues like royalty etc.

Also, it had its way on inclusion of marketing margin charged over and above the wellhead price of natural gas for calculation of royalty.

The arbitration tribunal has by majority issued a final partial award (FPA), and separately, two dissenting opinions in the matter.

RIL is in the process of reviewing the FPA and the dissenting opinions in detail and shall be taking the appropriate next steps based on legal advice.

RIL and BG hold 30 per cent stake each in the Panna/Mukta and Tapti fields while the remaining is with state-owned Oil and Natural Gas Corp (ONGC).